AWARENESS, OPPORTUNITY IN
LONG-TERM CARE INSURANCE
Feature Article
Gina Lauer

Gina Lauer is a contributing editor of Bank Insurance & Securities Marketing. She can be reached at glauer@bisanet.org.

BANK ADVISORS KNOW that broaching the topic of long-term care (LTC) insurance with clients is not always a pleasant or easy conversation.

But as a growing number of baby boomers hit retirement age, many financial professionals are finding that their audience has become more aware-and perhaps more receptive-to the need to plan for long-term health care needs.

"Consumer awareness of the need to plan is higher today than ever," says Jesse Slome, executive director of the American Association for Long Term Care Insurance (Westlake Village, Calif.).

Many people-particularly boomers-are now dealing with aging parents' health issues and, as a result of unplanned costs for in-home or facility care, have watched their parents' assets erode. "That makes them a lot more cognizant of the risks when they watch their family members go through it," notes John Falk, managing director of insurance at US Bancorp Investment and Insurance (Milwaukee, Wis.). (US Bancorp is the parent of US Bank, one of the largest commercial banks in the U.S.)

Industry experts have helped push LTC into the spotlight, too. Raising awareness of the need to plan for long-term care is foremost on the mind of Stephen Moses, president of the Center for Long-Term Care Reform in Seattle, Wash. Many in the financial services industry are aware of his crusade-and his 2008 journey with a 16-foot Airstream trailer named "The Silver Bullet."

Moses, during that year-long, cross-country road trip called the National Long-Term Care Consciousness Tour, spoke not only to investment and insurance professionals, but to the public, politicians, the medical community, and the media about the toll that LTC is taking on Medicaid as more aging Americans seek assistance. He urges everyone: Plan now for your long-term care needs.

In his seminars for financial planners, Moses outlines the historical factors and failings that have led to a dangerous reliance on Medicaid as a vehicle to fund long-term health care. As a former Medicaid state representative for the Health Care Financing Administration and later a senior analyst for the inspector general of the U.S. Department of Health and Human Services, Moses discovered the abundant abuse in the system. He then made it his mission to do something about it.

The way long-term care has been funded in the past "is not the way it's going to be funded in the future," Moses says.

His message to financial and insurance professionals is simple: People cannot be in denial about the risk of long-term care needs. Get the word out to your clients about the need for them to be more fiscally responsible for their own long-term care needs. "You won't get access to quality LTC unless you can pay privately. So plan early and save, invest or insure for the risk and cost of LTC."

He suggests that long-term care insurance and home equity conversion (reverse mortgages) provide some answers to resolving the LTC crisis and saving Medicaid and Medicare for those who truly need it.

Safety net at risk

"We are severely at risk of disassembling the whole safety net," Moses says.

US Bank's Falk says Moses came to "one of our meetings here that we had for all of our insurance consultants."

'Banks have done a disastrous job of marketing long-term care insurance, even though they are in a prime position to offer this product.'

—Jessee Slome, AALTCI

"I agree with Steve that… adults need to address long-term care beyond just relying on government… because the government pays for long-term care only when you're poor or indigent. If you have money and you do not plan for your long-term care expenses, you're going to spend a lot of your savings before you qualify for government aid," he says.

The AALTCI has a similar goal of educating the public on long-term care issues, advocating to Americans the need to plan for long-term care as well as helping educate those who market and sell LTC insurance.

Slome says 8 million Americans currently own LTC insurance. In 2007, 400,000 new policies were issued, he says. He expects numbers for 2008 to show a dip to about 360,000 new policies. "That is still a significant number of people who buy," he adds.

So how involved are banks in the sale of LTC insurance?

"Banks have done a disastrous job of marketing long-term care insurance," Slome says. "Even though they are in a prime position to offer this product."

He says that banks' investment and insurance reps are "transactionally" oriented, and LTC insurance is not a transactional sale. "You (a) have to educate… spend a little time talking to the customer and (b) you have to ask embarrassing health questions." In addition, he says most banks don't properly incent their reps to market LTC insurance. Finally, he calls banks' attempts to market LTC insurance "very feeble."

"As a result, nobody can tell you-and I've asked-nobody really tracks the level of sales of LTC insurance through banks, but it is infinitesimally small," Slome says.

That said, he doesn't dismiss banks' opportunities to thrive in the LTC marketplace. Financial institutions have several advantages: they are perceived as advising and educating people; they have facilities to hold seminars; and they can market to the small business owners, particularly those who are already bank customers.

"Long-term care insurance is one of the last products that have significant tax advantages for business owners, especially for small business owners, who may be able to deduct 100 percent of the cost and select who is covered and who isn't," he says.

Finding success with LTC Insurance

Despite what Slome calls "negligible" LTC insurance sales through banks, some institutions have nonetheless found continued success in this area.

"From a predecessor bank, we started selling long-term care in the mid-90s and continue to do that today," says US Bank's Falk.

LTC insurance is sold primarily through US Bank's 500 financial consultants located in a branch network system that spans 24 states.

"Typically our relationship begins with maybe an investment or an accumulation product. And then we move from there to some of the risks that might affect those assets or their retirement, one of those being a chronic illness that they might have as they age," Falk explains.

Financial consultants use proprietary financial planning software to help illustrate to clients the financial impact that can be associated with illness. "You can show them analytically this is the impact that you or your spouse's stay would have on your financial resources, and that makes a compelling case for a person to consider addressing this issue," he says.

Falk would not divulge what percentage of insurance sales were derived from LTC, but he did comment that "it is significant." He said LTC sales are a significant portion of "what we're doing today, and we do think it will continue to be as people continue, obviously, to age" and concerns about government programs are not fully addressed.

Have sales increased year to year? "Yes," Falk replies. "Enough to make us continue to focus on it significantly."

Keeping an eye on industry trends

Slome points to the changing demographics of long-term care "that are very significant in terms of industry trends."

'Adults need to address long-term care beyond just relying on government… because the government pays for long-term care only when you're poor or indigent.'

—John Falk, US Bancorp Investment and Insurance

The average age of a buyer of LTC insurance today is about 57 years old; in 2000, the average age of a buyer was 67. "That's a precipitous change, and there's a large difference between what goes through the mind of a 57-year-old and what goes through the mind of a 67-year-old," Slome says.

In addition, most consumers associate the words "long-term care insurance" with nursing homes, he continues. "The truth of the matter is most people don't want to go into a nursing home. They want to get care in their own home." And most LTC insurance benefits actually are paid out for home care or assisted living.

"So what I tell people is, the past in LTC insurance doesn't equal the present or the future."

At US Bank, Falk says the typical LTC client is over age 60 with about a million dollars or less in investable assets. "People who have $300,000 to a million dollars are the ones for whom even a short stay is really going to impact their financial well-being," he says.

What objections do clients have for not purchasing LTC? "I think the biggest reason people don't buy is they just don't think they're going to need it," Falk says. "So having that planning software helps a lot to illustrate the economic impact."

Men are particularly resistant to the suggestion that they may become sick and need care in the future, he says. Women are more willing to address their long-term care needs.

Some people also express the concern that if they never get sick-or die peacefully in their sleep-all the money that they've paid into premiums is gone. "So we have different options. We can show them that they will get money back, depending on the product selected, whether or not they need it," says Falk.

US Bank offers a range of products, including 'pure' LTC products and asset-based (or 'combination') solutions. Some other products have been added in the past few years "because those have gone through kind of a genesis of being more beneficial to the client."

Insurance providers have not only developed new LTC products, but have tried to pave a smoother sales process.

"Some companies have streamlined the underwriting process where you can qualify for a policy that same day, or within seven days. Clients do like that," Falk says. "Traditionally, though, health insurance is still typically a four- to six-week underwriting process."

Before a product is introduced, however, consultants first must consider a client's financial situation. "First we're going to determine if they even need it, and then how much, because a lot of times you might blend a solution, with customers paying some of the cost out of their current income and/or interest savings," Falk says.

AALTCI's Slome says today's LTC products are "very different" and designed to suit the mindset of the younger buyer. He calls them "life-stage" products, which allow a customer to "lock in" coverage at a base rate when they are younger (and usually healthier) and then periodically increase or change coverage in the years ahead.

He emphasizes that a knowledgeable sales staff is critical when selling LTC insurance. "A little over two-thirds of people who buy, shop around. And today, that's an old number." People will listen to what an advisor has to say, and then likely go online to do some comparison shopping.

"So banks have to train their people so that they are really knowledgeable, and they're going to have to have access to multiple products, because the prices can vary," Slome says.

There is another option for banks-particularly community banks or credit unions-that want to offer long-term care but don't have the sales force or resources to do so. "You partner with a company that can bring you the expertise and can bring you the products," Slome says.

In this case, "the bank rep becomes the agent of record, but they have a negotiated override that they work on. And that has proven to be a successful formula," Slome adds.

LTC in an unstable market environment

Long-term care insurance has not been shielded from the battered economy, but "even in tough economic times, people are still buying long-term care insurance," says Slome, "though probably for different reasons." In some cases, he says, people may feel that they no longer have enough assets to self-insure.

'Given the increased awareness and the million of individuals between 55 and 65, there's no reason why we shouldn't go from 8 million to 16 million Americans who have some long-term care insurance protection.'

US Bank's Falk says he finds the market adjustments have made people "more aware of their circumstances." They've learned that accounts don't always continue to climb. Rather "it's shown in the last six months that it can go the other way quite rapidly."

He draws the parallel between that declining investment account and a person's health. "What wasn't a problem a year ago is a problem today. That is why we help them address this issue before they get sick."

In these difficult economic times, Slome says "you better be talking to people about how to make it more affordable, how to save money." The AALTCI's Web site provide a "Producer's Resource Center" as well as marketing and sales tools for agents.

People cannot be in denial about the risk of long-term care needs. Get the word out to your clients about the need for them to be more fiscally responsible for their own long-term care needs, says Moses.

His outlook is optimistic. "Given the increased awareness and the millions of individuals between age 55 and 65, there's no reason why we shouldn't go from 8 million to 16 million Americans who have some long-term care insurance protection."